2 LGC programs lost $37 m illion over eight years

CONCORD — The former New Hampshire Local Government Center’s taxpayer-funded workers’ compensation and property liability programs operated at a combined loss of more than $37 million during their most insolvent years, according to a review of thousands of pages of documents submitted by the public insurance administrator to the Department of Labor.

The revelation comes as the Bureau of Securities Regulation seeks to revoke the quasi-government status of HealthTrust, a former LGC subsidiary, HealthTrust and another former LGC subsidiary, Property-Liability Trust, reached a secret agreement in October to transfer all of PLT’s assets and liabilities, including the workers’ compensation program, to HealthTrust.

The agreement became effective in January when the state Supreme Court upheld most of Secretary of State hearing officer Donald Mitchell’s order, issued in August 2012, that LGC split its operations into separate entities and repay more than $50 million to member political subdivisions.

The agreement, which wasn’t made public until after the Supreme Court released its decision Jan. 10, called for PLT to be absorbed into HealthTrust, which the BSR said violates the Mitchell order. The BSR’s motion seeks to undo the agreement and render HealthTrust a private operation subject to regulation by the Insurance Department and subjecting it to state income taxes.

A review of annual reports LGC submitted to the Department of Labor show that LGC annually said its workers’ compensation program was losing millions and was being partly floated by contributions, in cash, from other LGC programs.

From 2003 through 2011, LGC told the Labor Department that the workers’ compensation and PLT programs suffered operating losses totalling a combined $37 million, according to financial statements LGC submitted to the Labor Department, which the New Hampshire Union Leader acquired through Right-to-Know requests submitted to DOL and PLT.

The largest combined loss in a single year was 2009, when the programs were in the red for more than $7.3 million.

And LGC was up front about the losses. From a report submitted in March 2006: “The Board understood from the start of Workers’ Compensation Trust that it would operate at a loss until sufficient contributions were earned to meet expenses.”

Labor Commissioner James Craig has said DOL is not responsible for policing where the programs raise their funds, and he said Friday that, while communities or risk pools must, by law, appropriate funds to cover claims, there was nothing specifying how that money had to be raised prior to the Supreme Court decision upholding the Mitchell order.

“I don’t think there were any rules saying where the money had to come from, and that’s part of the problem,” he said.

Failure of oversight?

The current hand-wringing over the secret agreement and the problems HealthTrust and PLT face because of the ordered repayment all could have been avoided had the Department of Labor properly regulated the workers’ compensation program all along, said David Lang, president of the Professional Fire Fighters of New Hampshire, who waged a decade-long battle with the LGC that culminated in a state Supreme Court decision that forced LGC and its subsidiaries to comply with state Right-to-Know laws.

Craig has refuted the claims, saying the Labor Department, by compelling LGC and other risk pools to post secure guarantees that would cover all potential workers’ compensation claims, has done its job by ensuring that injured workers would be protected.

“We’re concerned with making sure that if a firefighter falls off a ladder or some other covered person gets hurt, that claim gets paid,” he said. “That money, despite the paper loss, was always there. No worker was not paid what he was supposed to be paid.

“With this LGC thing, everything is hindsight is 20/20. The road map was created by this case,” he said.

Lang, however, said the Labor Department is bound to guard against employee health care contributions being used for purposes other than health insurance. HealthTrust transferred at least $17.1 million in health insurance contributions from public employers, employees and retirees to keep the workers’ compensation program afloat for more than a decade. He likened the situation to a town taking health insurance contributions from employees and using the funds to pay for upkeep to town vehicles.

“The Department of Labor is also supposed to ensure that your salary is not garnished and that contributions for health insurance are not redirected to workers’ compensation,” he said. “That, on any day of the week, is the responsibility of the Department of Labor.”

Regulatory hearings

The BSR and HealthTrust held a scheduling conference with Mitchell on Monday, with initial motions due back later this month, said HealthTrust attorney David Frydman.

HealthTrust has argued that Mitchell does not have jurisdiction to rule on the merits of the agreement reached between HealthTrust and PLT because the agreement was not part of Mitchell’s August 2012 order. It has also argued that the agreement does not violate the order because it calls for PLT’s assets to be disbursed to HealthTrust after a “runoff” of PLT’s pending insurance claims.